With aid budgets shrinking and development finance under pressure, African governments and development banks are ​increasingly turning to debt guarantees to attract private capital into infrastructure projects.

Guarantees are designed to reduce risks for investors by promising compensation if a project fails, ‌a borrower defaults or political events such as coups or asset expropriation disrupt an investment, while for borrowers they can help secure the required credit ratings, longer-term financing and better pricing.

“Africans, especially the (development banks), decided that we need to take our future and our destiny into our own hands,” said Banji Fehintola, Head of Financial Services at the Africa Finance Corporation.

“That’s really why there’s a lot of value in thinking of guarantees as ​the next thing for us to crowd in capital at scale.”

Fehintola and others say guarantees can be designed to draw in hundreds of billions from pension and ​insurance funds, including those in Africa, that currently view African infrastructure as too risky.

“We’re talking very material sums,” said Felipe Berliner, co-founder of ⁠investment firm Gemcorp Capital, adding that if insurance companies had access to highly rated infrastructure projects, they would gladly park tens of billions of Dollars there.

–Reuters–